ESG investing isn't dead — it's just been stripped of its buzzword

The numbers look grim at first glance. ESG-designated funds recorded a net outflow of $935 million in January 2026 alone — the fourteenth consecutive month of negative flows — and the number of ESG-labeled funds has contracted by 100 since January 2025, according to a May 2026 analysis published by Harvard Law School's Forum on Corporate Governance. The US SIF Foundation's 2025/2026 Trends Report found that while $6.6 trillion in U.S. assets under management is still explicitly marketed as ESG or sustainability-focused, the political and regulatory environment has forced a visible recalibration of language, strategy, and disclosure practice across the industry.

But three advisors who work with values-driven investors say the obituary for ESG is premature. The label may be retreating. The underlying investment philosophy, they argue, is not.

Regulatory pressure has chilled advisor participation — but not wealthy clients

Jeffrey Gitterman, managing director at Perigon Wealth Management, has spent more than 25 years building a practice rooted in climate-aware investing. He draws a sharp distinction between where values-based investing is thriving and where it has genuinely stalled.

At the top of the wealth spectrum, particularly among family office clients, demand for impact-aligned portfolios has never wavered. The decline, in his view, is concentrated among high-net-worth and mass-affluent clients, where advisors play a more central role in shaping investment decisions — and where regulatory and political scrutiny of ESG service providers has introduced real professional risk.

"The perceived risk is too large for advisors to promote this kind of investing, and therefore often will err on the side of caution. Some highly dedicated advisors remain committed to impact investments for these segments, but most who were on the fence about offering these services have fallen off due to the risk, both political and regulatory," Gitterman said.

Gitterman does see near-term opportunity in a specific category of resilience investment: infrastructure tied to climate risk, energy security, and domestic onshoring. He points to the electricity and water demands generated by AI data center buildouts as a structural driver of long-term investment in sustainable infrastructure — a trend that creates investment upside regardless of political sentiment. 

Greenwashing gave way to AI-washing — and the cycle will repeat

Jim Worden, chief investment officer at The Wealth Consulting Group, rejects the fad narrative entirely. In his view, the market went through a greenwashing problem similar to what the industry is now navigating with AI-washing: real underlying principles inflated by opportunistic marketing, followed by a necessary correction.

"The premise of ESG investing makes sense for the long-term — that better governance, more inclusion of stakeholders, and better transparency about long-term environmental impact is good for society," Worden said. "To the degree that ESG became overly politicized on both sides is unfortunate."

Worden's view of near-term market dynamics is notably pragmatic. The current AI and data center buildout is driving demand for energy and power infrastructure, and many companies classified under ESG frameworks are participating in that buildout — not because investors are demanding ESG, he says, but because of where those companies sit in the energy supply chain. The US SIF's 2025/2026 Trends Report supports his longer-term optimism: nearly 70% of sustainable investing respondents said they remain committed to sustainability's long-term future, even amid the current political headwinds.

"We go through periods where the pendulum swings too far in one direction or another. The markets will ultimately reward quality investments over time, and quality investments will almost always tend to lean on the side of being more ethical, not less," Worden said.

Worden also sees technology — including autonomous vehicles and AI-driven efficiency gains — as net positive forces for ESG-aligned outcomes over a longer time horizon, even if the near-term energy demands of the AI buildout create tension with sustainability goals. 

ESG is maturing — and the quality is improving

Jay Winston, associate wealth manager at Coldstream Wealth Management, offers the most optimistic read of the three. In his view, the retreat of the ESG label has produced an unexpected benefit: the investor base that remains is more sophisticated, more committed, and better served by more rigorous analytical tools than at any previous point in the industry's history.

"Regardless of whether or not the federal government currently supports and promotes companies embarking on environmental or social impact initiatives at their companies, many firms are continuing to do so based on internally driven principles, long-term strategic planning, a perception of favorable market conditions, and growing stakeholder expectations," Winston said. "It is easier than it has been in years to be sure the ESG fund in which you're investing is doing the right thing for the right reasons."

Winston points to a telling data point: approximately 90% of S&P 500 companies now release ESG reports, according to sustainability reporting data compiled by Vena Solutions in 2025, underscoring how deeply sustainability disclosure has become embedded in corporate practice — irrespective of the political climate. The ESG analytical framework, he argues, has become part of standard investment due diligence even as the explicit label fades. Meanwhile, 84% of S&P 500 companies now identify climate change as a financial risk, up from 67% in 2021, according to the same data set.

"We may see fewer funds explicitly carrying the ESG classification, but they have been replaced with more sustainable, long-term values-focused portfolios which depend less on buzz-word hype and more on active evaluation of holdings through the lens of sustainability and stewardship," Winston said.

Taken together, the picture these three advisors paint is one of an industry in transition rather than retreat. The ESG label has become politically toxic in parts of the U.S. market, and the short-term capital flows reflect that. But the analytical tools, the institutional demand, and the long-term case for values-aligned investing have not disappeared with the branding.

Advisors serving high-net worth and family-office clients may find they are less concerned with whether a fund still carries an "ESG" label and more focused on whether the underlying strategy still reflects their values — a due-diligence conversation, not a marketing one.

For clients nervous about the ESG label itself, it's worth noting that it hasn't disappeared, it's been absorbed into standard due diligence. That's a useful distinction to make explicit with a client asking "should I get out of this fund?"

As for fund selection: with ESG-labeled funds contracting and firms reclassifying strategies, advisors may want to look past the label on fund fact sheets and toward the underlying holdings and stated mandate — since a fund dropping the ESG designation doesn't necessarily mean its strategy or holdings have changed.

Ultimately, the retreat of the ESG label doesn't necessarily mean the conversation with clients goes away — it means the conversation changes shape.